Asian Emerging Markets Vulnerable to Shock: ADB

Asia’s developing economies will pick up speed in 2013 but its recovery will remain fragile said the Asian Development Bank on Tuesday, citing vulnerability to external shocks and increasing geopolitical disputes as threats to growth.

The economies of developing Asia appear to have settled into a new growth path that will allow the region to expand by between 6 percent and 7 percent a year — a pace that is significantly slower than that seen before the global financial crisis, but represents a stable pattern that could last over the next decade.

“It looks like we’re in a new trend,” said Changyong Rhee, the chief economist of the Asian Development Bank, which on Tuesday released its new forecasts for emerging Asia.

The group of developing Asian nations covers 45 nations, which includes major emerging economies such as China, India and Indonesia.

After relatively muted growth last year, when the region expanded by 6.1 percent, developing Asia is expected to pick up speed again with growth of 6.6 percent this year and 6.7 percent next year, according to the bank’s projections.

But the bank warned that Asia remains vulnerable to shocks from around the world. Among them, it said, are the wrangling over the U.S. debt ceiling and the struggles to implement austerity measures in Europe.

Simmering border disputes, potential asset bubbles inflated by the monetary stimulus efforts of the world’s developed economies, and the possible reversal of capital inflows once that monetary stimulus ends also represent risks to Asia.

The ADB also issued a stark warning on Asia’s rapidly growing energy demand. The region, according to the bank, is moving along a “dangerous unsustainable energy path” that “could result in environmental disaster” and increase Asia’s dependence on oil from the Middle East.

It projects that Asia will account for over 50 percent of world energy consumption by 2035, up from 34 percent in 2010.

“With insufficient energy, developing Asia would need to scale back its growth ambitions,” said the report, which recommended curbing general energy subsidies in favour of targeted ones, tapping cleaner energy sources such as wind, solar and biofuels, and integrating gas and electricity networks to create a regional market.